Kế toán, kiểm toán - Introduction to accounting

1 Introduction to Accounting Chapter 1 2 1. Explain the role of accounting information 2. Identify the users of accounting information 3. Distinguish between financial accounting and management accounting 4. Explain the role of the regulatory bodies in developing generally accepted accounting principles 5. Explain five of the general principles that underlie accounting standards Learning objectives 3 6. Describe the key features of four business structures 7. Define the accounting equation and its components 8. Analyze transactions using the accounting equation 9. Describe the features of financial statements and explain how they interrelate Learning objectives 4 Explain the role of accounting information Learning objective 1 5 ▪Accounting is an information system that – identifies information – records information – communicates information ▪Aim of accounting is to provide sufficient information for users to make informed business decisions Role of accounting information 6 ▪ Identifying information – Recognizing transactions and events ▪Recording information – Measuring, classifying, documenting ▪Communicating information – Organizing, analyzing, interpreting, publishing Role of accounting information 7 Identify the users of accounting information Learning objective 2 8 ▪ Investors ▪Lenders ▪Suppliers ▪Employees ▪Customers ▪Government and regulatory agencies ▪General public ▪Managers Users of accounting information 9 Distinguish between financial accounting and management accounting Learning objective 3 10 Financial accounting Management accounting Users External Internal Reporting requirements Regulated No regulation Detail General reports Detailed reports Frequency Annual or half-yearly As required Focus Past Future Financial and management accounting 11 Explain the role of the regulatory bodies in developing generally accepted accounting principles Learning objective 4 12 GAAP: ▪Generally accepted accounting principles – Rules that govern financial accounting practice FASB: ▪The Financial Accounting Standards Board – Issues the Accounting standards codification, the single authoritative source of U.S. GAAP Role of regulatory bodies 13 SEC: ▪The Securities and Exchange Commission – Authorizes the reporting requirements for companies who issue stock to the general public IASB: ▪ International Accounting Standards Board – Issues IFRS, the International Financial Reporting Standards Role of regulatory bodies 14 Explain five of the general principles that underlie accounting standards Learning objective 5 15 1. Historical cost principle ▪ items are recorded at exchange value 2. Monetary unit principle ▪ items are recorded in dollars 3. Going-concern principle ▪assumes the business will remain in operation General principles of accounting 16 4. Business entity principle ▪business records kept separate from owners 5. Materiality principle ▪ information is material if its omission or misstatement could change or influence the judgment of a user relying on that information General principles of accounting 17 Describe the key features of four business structures Learning objective 6 18 ▪Sole proprietorships ▪Partnerships ▪Corporations ▪Limited Liability Company (LLC) ▪Each has advantages and disadvantages ▪ Important to choose business structure because of legal and taxation implications Business structures 19 ▪A business that only has one owner ▪Separate business entity ▪NOT a separate legal entity ▪Unlimited liability ▪Earnings taxed in the owner’s personal tax return Sole proprietorships 20 ▪Two or more people that have an agreement to form a business ▪Agreement includes how the income or losses of the partnership are to be shared ▪Separate business entity ▪NOT a separate legal entity ▪Unlimited liability ▪Earnings distributed among the partners and taxed in the partners’ personal tax return Partnerships 21 ▪Separate legal entity – Own rights and responsibilities, similar to that of a natural person – Corporation responsible for its actions ▪Limited liability Corporations 22 ▪Ownership divided into units called shares, collectively known as stock ▪Owners are stockholders ▪Double taxation – Corporations pay tax on earnings, AND dividends distributed to stockholders are also taxed in the owner’s individual tax return – Double taxation does not apply if business elects to be treated as an S corporation provided it is eligible to do so Corporations 23 ▪Combines characteristics of both corporations and partnerships ▪Separate legal entity (corporation) ▪Limited liability (corporation) ▪Taxation (partnership) – May elect to be taxed as a corporation, partnership or sole proprietorship, depending on specific structure ▪Owners are members who hold a membership interest Limited liability company (LLC) 24 Define the accounting equation and its components Learning objective 7 25 Accounting equation 26 Assets = Liabilities + Equity ▪Resources owned or controlled by an entity that are expected to provide benefits to the business in the future Examples: – Cash – Accounts Receivable – Office Supplies – Equipment – Machinery – Vehicles – Land Assets 27 ▪Probable future sacrifices of economic benefits where the entity has an obligation to transfer assets to another entity outside the organization, or to provide them with a service Examples: – Accounts Payable – Bank Loan – Loan Payable Liabilities 28 ▪The residual interest, held by the owners of the entity, in the assets of the entity after all liabilities have been deducted ▪Also known as net assets Examples: – Owner's Equity – Capital Equity 29 ▪Equity can be subdivided into – Capital – Withdrawals – Revenues – Expenses ▪This creates the expanded accounting equation Equity 30 A = L + C – W + R – E Where: A = Assets L = Liabilities C = Capital W = Withdrawals R = Revenues E = Expenses Expanded accounting equation 31 ▪Represents the value of the contributions the owners have invested in the business ▪Capital increases equity ▪Another name for Owner's Equity Capital 32 ▪Represents the amount the owners have withdrawn from a sole proprietorship or partnership ▪Withdrawals decrease equity ▪Also known as Distributions Withdrawals 33 ▪ Inflows or enhancements of assets or settlements of liabilities (or both) that result from activities that make up the ongoing central operations of the entity ▪Revenues increase equity Examples: – Sales – Sales Revenues • amounts earned by a firm by providing goods to customers – Service Revenues • amounts earned by a firm by providing services to customers Revenues 34 ▪Outflows or other using up of assets or incurrences of liabilities (or both) that result from activities that make up the ongoing central operations of the entity. ▪Expenses decrease equity Expenses 35 Expenses Examples: – Electricity Expense – Gas Expense – Telephone Expense – Utilities Expenses – Rent Expense – Wages Expense • Employees paid on an hourly basis – Salary Expense • employees paid a set amount, regardless of hours worked – Advertising Expenses 36 Analyze transactions using the accounting equation Learning objective 8 37 ▪Transactions and events are recorded in the accounting system ▪A business transaction is an event in which entities exchange something of value ▪Transactions are recorded as increases or decreases in the elements of the accounting equation Transaction analysis 38 ▪Each transaction has at least two entries that affect the accounting equation ▪The accounting equation must remain in balance after each and every transaction Assets = Liabilities + Equity Transaction analysis 39 1. Decide if the event is to be recorded in the accounting system 2. Determine the changes in the elements of the accounting equation – Identify the names of the items affected – Classify each item as an element of the expanded accounting equation – Determine whether each item has increased or decreased – Calculate the value of the increase or decrease of each item Steps in transaction analysis 40 3. Record the transaction and check that the accounting equation remains in balance – If the accounting equation is not balanced, an error has been made – This error needs to be identified and fixed up before the next transaction is recorded Steps in transaction analysis 41 Transaction Owner invests $2,000 cash into the business Transaction analysis Item Classification Change Value Cash Asset Increase $2,000 Capital Equity Increase $2,000 Accounting equation analysis Assets = Liabilities + Equity Cash = Capital (A) +2,000 +2,000 A. Cash investment by owner 42 Transaction Purchased supplies for $700 cash Transaction analysis Item Classification Change Value Supplies Asset Increase $700 Cash Asset Decrease $700 Accounting equation analysis Assets = Liabilities + Equity Cash + Supplies = (B) -700 +700 B. Purchased an asset with cash 43 Transaction Purchased a computer on credit for $2,400 Transaction analysis Item Classification Change Value Equipment Asset Increase $2,400 Accounts Payable Liability Increase $2,400 Accounting equation analysis Assets = Liabilities + Equity Equipment = Accounts Payable (C) +2,400 +2,400 C. Purchased an asset on credit 44 Transaction Paid $600 cash toward the computer previously purchased on credit Transaction analysis Item Classification Change Value Accounts Payable Liability Decrease $600 Cash Asset Decrease $600 Accounting equation analysis Assets = Liabilities + Equity Cash = Accounts Payable (D) -600 -600 D. Paid for an asset purchased on credit 45 Transaction Received a loan of $5,000 from the bank Transaction analysis Item Classification Change Value Cash Asset Increase $5,000 Loan Payable Liability Increase $5,000 Accounting equation analysis Assets = Liabilities + Equity Cash = Loan Payable (E) +5,000 +5,000 E. Received loan 46 Transaction Performed tutoring services for $3,300 cash Transaction analysis Item Classification Change Value Cash Asset Increase $3,300 Revenues Revenue Increase $3,300 Accounting equation analysis Assets = Liabilities + Equity Cash = Revenues (F) +3,300 +3,300 F. Performed services for cash 47 Transaction Performed $4,400 worth of tutoring services on credit Transaction analysis Item Classification Change Value Accounts Receivable Asset Increase $4,400 Revenues Revenue Increase $4,400 Accounting equation analysis Assets = Liabilities + Equity Accounts Receivable = Revenues (G) +4,400 +4,400 G. Performed services on credit 48 Transaction Received $800 cash from Accounts Receivable Transaction analysis Item Classification Change Value Cash Asset Increase $800 Accounts Receivable Asset Decrease $800 Accounting equation analysis Assets = Liabilities + Equity Cash + Accounts Receivable = (H) +800 -800 H. Received cash from Accounts Receivable 49 Transaction Paid $150 cash for advertising campaign Transaction analysis Item Classification Change Value Advertising Expense Expense Increase Expense Decrease Equity $150 Cash Asset Decrease $150 Accounting equation analysis Assets = Liabilities + Equity Cash = Advertising Expense (I) -150 - +150 I. Paid expense with cash 50 Transaction Owner withdraws $250 cash from the business Transaction analysis Item Classification Change Value Withdrawals Equity Increase Withdrawals Decrease Equity $250 Cash Asset Decrease $250 Accounting equation analysis Assets = Liabilities + Equity Cash = Withdrawals (J) -250 - +250 J. Owner withdraws cash from business 51 Transaction Signing an employment agreement Transaction analysis Item Classification Change Value - - - - - - - - Accounting equation analysis No effect on the accounting equation K. Non business transaction 52 ▪Each transaction has at least two entries ▪Each transaction can be analyzed according to the increase and/or decrease of the elements of the accounting equation ▪Withdrawals and Expenses decrease Equity ▪The accounting equation always remains in balance after each transaction Assets = Liabilities + Equity Remember 53 Describe the features of financial statements and explain how they interrelate Learning objective 9 54 There are four main financial statements: ▪ Income statement ▪Statement of changes in owner's equity ▪Balance sheet ▪Statement of cash flows Financial statements 55 ▪Summarizes the revenues earned and expenses incurred over a period of time Income statement 56 ▪ Identifies the movements in equity over a period of time ▪These include earnings, contributions and withdrawals of capital by the owners of the business Statement of changes in owner's equity 57 ▪Presents the assets, liabilities and equity of the business at a specific point in time Balance sheet 58 ▪Explains the inflows (receipts) and outflows (payments) of cash over a period of time Reports 3 cash flow categories: ▪Cash flows from operating activities – Cash flows that occur in the process of providing goods or services to customers Statement of cash flows 59 ▪Cash flows from investing activities – Cash flows that arise from the purchase and sale of assets that are intended to be used by the business over the long term ▪Cash flows from financing activities – Cash contributions and withdrawals by the owners of the business, as well as obtaining and repaying long-term loans Statement of cash flows 60 Statement of cash flows 61 ▪Net income (or net loss) from the income statement is an input into the statement of changes in owner's equity ▪Ending balance of Capital in the statement of changes in owner's equity is the ending balance of Capital reported in the balance sheet ▪Ending balance of Cash in the statement of cash flows is the balance of Cash in the balance sheet. Relation between the financial statements 62